GPS has become an important tool for travel today, guiding you on your journeys across town or across the country. Financial plans serve a similar purpose, helping you navigate your current financial circumstances to reach your goals. While the stability that a solid financial strategy provides is likely the most prominent benefit, it's not the only one.
You’ll have a more accurate financial forecast
As with any journey, it’s not enough to only know where you want to go; you have to know how to get there. A financial plan allows you to define your money-related objectives and then map out the best path to achieve them.
Effective financial forecasting is rooted in a solid financial plan that addresses objectives for:
- Savings and investments
- Real estate purchases
- Tax strategies
- Insurance
- Family expansion
- Estate planning
A good plan gives you a more comprehensive view of your finances for both the present and the future, allowing you to make decisions for tomorrow with reliable current information. That means that you’ll be able to see, for instance, if your goal of saving $1 million for retirement is actually feasible based on your current nest-egg building activities, and then make adjustments accordingly.
Your budget will be more effective
Keeping your short, mid- and long-term goals in mind as you plan your monthly budget can help maximize your current cash flow to serve your future needs. Your current spending can stay aligned with your future aims, and you’ll have a better idea of your good money habits as well as the small, everyday leaks that could turn into bigger problems down the road.
You’ll have smoother life-stage transitions
Breaking your financial plan into sections based on life events allows you to strategize more effectively for the changes that occur. Your financial plan in your twenties, for example, may include reducing student loan debt and working to build a solid credit history, while your financial plan for your 50s will focus more on maxing out retirement savings and covering your children's education expenses. And while it’s true that life rarely follows even the best-laid plans, having an idea of how you want to approach financial milestones will give you a better idea of where you're going and what you'll need.
You’ll be happier
Money is likely one of the biggest stressors you face. Effective management of it, however, may actually be the key to contentment. Studies have found that people, like the members of the community at BeyondThePurchase.org who have developed and maintain a strong financial management strategy, also experience more positive emotions and report greater overall satisfaction with their lives. In fact, a CFP Board survey found that planners who make between $50,000 and $100,000 feel even more financially content than their non-planning counterparts who make $100,000 or more.
Sources:
- Maurie Backman, Do You Have a Financial Plan? Here's Why You Need One, January 27, 2017
- Jacob Lumby, What is Financial Planning and Why Should You Care?, December 4, 2017
- Kevin Voigt, What Is Financial Planning and Why Is It Important?, July 31, 2018
- Conor Killmurray, The Benefits of Sticking to a Financial Plan, September 21, 2018
- Jeff Rose, Financial Planning Basics in 9 Steps, October 3, 2018
The information mentioned in this article is for informational purposes only, is intended to provide general guidance and does not constitute legal or tax advice. Each person’s situation is unique and may materially differ from the information provided herein. You should seek the advice of a financial professional, tax consultant and/or legal counsel to address your specific needs before any financial or other commitments regarding the issues related to your situation are made. Popular Bank does not make any representations or warranties as to the content contained herein and disclaims any and all liability resulting from any use of or reliance on such content.